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Only 43% of U.S. companies expect to provide compensation increases in 2010.  In addition to the wage freeze, 37% of companies say they plan to cut benefits.

The Society of Human Resources Professional quotes a Careerbuilder survey that claims 65% of companies provided compensation increases during the deepest part of the recession and only 32% planned to cut benefits. That’s a 12% decrease in companies offering raises during 2010. And a 13% increase in companies cutting benefits.

On top of this bleak employee news is last week’s 2% increase for federal government employees. If you haven’t spoken yet spoken with your employees and been transparent about whether you plan to offer raises this year, you should make that topic a hot priority.  Mainstream media continues reporting about a jobless recovery, but media reports can’t shoulder your burden. If you’re not giving employees a pay increase during 2010, part of being a responsive employer is telling them now to reduce their anxiety and be fair.

You can be certain that anyone you might lose over this issue is going to walk if you plan on freezing compensation this year.  Whether they walk right now or when you tell them in a few weeks or months is akin to choosing what poison you plan to breathe.

Cynics will note that the true jobless rate is over 17% while reported unemployment is 10%.   That means many employees likely won’t leave over compensation issues.  Your stars won’t leave if you’ve created a great environment.  And if you have staff who aren’t stars that leave, this is an employer’s market so wish them well and hire a star because you surely don’t buy into that nonsense about having a mix of star and average employees on your team.

As a small business owner, you need to be blunt, but kind.   You’ll need talking points about when you anticipate restoring compensation increases.  Your accountant and attorney should be involved at least in reviewing your talking points.  If your organization is big enough to have a HR professional, put that person on the case today with a draft due to you by Wednesday so you can make the announcement Friday.

Your takeaway as a small business leader is that staying quiet about compensation is an unacceptable form of avoidance for any organization, much less a small business in the midst of a horrible economic downturn.

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I first came across Keurig coffee pods years ago when the sales rep pitched our CFO on employee pilferage and our office manager on cleanup.  What a slam dunk.

It's good coffee, but sell it that way rather than reducing employee pilferage
It’s good coffee, but sell it that way rather than reducing employee pilferage

Even when calculating the cost of the pods running as high as 50 cents each, throwing in the machine was a no-brainer.  Give away the razor and sell the blades works almost a century after the fact.   And like those Gillette razors I scrape my face with, the K-cups were pricey relative to the substitutes in the market. That sales pitch is shot now.  Nearly everyone I know who has more than one coffee drinker in a house has bought or is considering buying a Keurig or Senseo.   Yes, real coffee snobs, I know you grind your own beans and use distilled water for each pot.  I didn’t mean to insult you.  Keep reading because there is a lesson here for you too.

The pilferage pitch worked in part because we had people walking out with plants or a ream of paper or a roll of paper towels.  We employed thieves.  Our response was the same as any company.  We locked things up, made it difficult to have access to the things people used in their daily work like pens and paper and other equipment.  I can’t count how many calculators we bought.   Then we tasked someone with running around and opening locked closets and cabinets when people needed equipment.

Office pilferage exists everywhere.  But when a company moves from a handful of employees where everyone knows everyone’s business to enough employees to mask pilferage, what should the response be? Restrictive, paternalistic policies may not be the answer.  Firing someone for walking out with a pen is silly.   But you would fire someone who walked out with a $25 case of coffee.  Or you should, and if you wouldn’t, now is a good time to ask yourself why.

Building a culture of honesty is a hard process.  The rewards can be monetary in terms of profit sharing, communicative and my wife’s favorite saying to our children when they were growing up:  “That’s not okay”.   Ultimately, time spent policing employees is a command-and-control leadership technique that’s easiest to implement and manage.  The rigidity stifles creativity, encourages office castes and stops the casual rule breakers. Workplaces need rules and consequences.  But no one should be able to sell a basic product like coffee on the premise that it uses a delivery system that was then in very few homes.  Think about your workplace today — everything from missing lunches to missing toner.  Then think about your team and how you can begin adapting a culture of honesty. Start with yourself.  If reports are “good enough”, if vendors are paid “just a little late”, if office politics are a way of life, today is a great day to declare a new era.   Start with yourself, work to your lieutenants and change your culture.   Because the real issue is not that your culture is spending more on time to lock up office supplies.  The real issue is the broken windows theory of what’s acceptable becoming commonplace and transferring to your partners, your employees and most importantly, to your customers.

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Bill Parcells, the current head of all things football for the Miami Dolphins, is a football coaching legend.  Right now — today — 7 NFL head coaches include serving as an assistant to Parcells at one of the Hall of Famer’s stops.  Another 4 former NFL head coaches are among his pupils.  Being  an assistant to Bill Parcells is like clerking for the Chief Justice of the U.S. Supreme Court.  Eventually, those clerks become pretty well known attorneys and judges too.

Virginia Cavalier mascot won't be waving to Al Goh
Virginia Cavalier mascot not waving to Al Groh

Al Groh is one Parcells disciple that hit the big time more than once.  Selected by his mentor to coach the New York Jets a decade ago, Groh quit after one year to return to Charlottesville where the head coaching job at his alma mater, the University of Virginia, was waiting gift-wrapped.

Lauded in pages of the New York Times when he was hired and criticized when he resigned, Groh had the chance to go home again.  He coached the team he and son had played for and was brought in to replace a coaching legend. Five bowl game appearances and the second highest number of wins in school history didn’t save Al Groh’s job yesterday.   Forget that he was named ACC Coach of the Year in 2002 and again in 2007.  Groh coached the Cavaliers to two straight losing seasons.  That’s enough in the big game ranks to get you fired, even with a multi-million dollar payout.

How bad a coach can you be if the university is willing to pay millions for you *not* to coach in addition to the salary of the replacement? Remember, this is one of Bill Parcells’ disciples, a man who was chosen as the best coach in his conference twice in the last seven years.  He has more wins at Virginia than the coach he replaced.   He has more wins as a head coach at Wake Forest than anyone except one person.  He coached the New York Jets to a winning season. Is Al Groh really a bad football coach?

In the constant culling of employees espoused by business leaders like Jack Welch, being a C player for two years in a row is more than enough reason to get a pink slip.  Welch fans may argue (we’ve all heard them) that only the immediate past matters and the failure of  a manager to terminate a C player is the sign of a weak manager.  You’re damned if you do and damned if you don’t.

As a small business leader, you should be prepared to move fast and terminate leaders who aren’t getting the job done.  But University of Virginia officials made an especially expensive decision in spending millions to terminate someone capable of performing the work.    University of Maryland officials face the same decision with their coach, Ralph Freidgen, rumored to be on the chopping block after one of the worst years in Maryland football history. Do the benefits really outweigh the cost in each case?  And that’s the real question you need to consider before moving on a termination in your small business.  Any personnel action will send shockwaves throughout the organization, expose the company to liability and require a transition period.  Before terminating anyone – much less your public face and a leader – make sure that the value brought by a replacement exceeds the incumbent’s performance and the financial and emotional cost of the transition.

Cavalier photo by Terren in Virginia via Creative Commons